I've co-written 7 books on investments and personal finance with Ken Fisher, CEO of Fisher Investments, 5 of which were national bestsellers. I also led the development of the Fisher Investments On series, a collection of educational guides published by Wiley covering the primary investment sectors—from energy to consumer staples to health care—with in-depth analysis on the economic, political, and sentiment forces influencing each.

A "Fine" Economy -- and Blinding Bias

President Obama continues to get hoots and hollers over his statement the private economy is doing fine. He then later attempted to walk that statement back, which only led to speculation whether the first statement was a gaffe, not a gaffe, or a Washington gaffe (that’s when politicians inadvertently say something they mean).

Whether or not you agree with the statement, some facts to consider.

US GDP is at all-time highs. As is the global economy. Since the March 2009 global market bottom, US stocks are up 115% and global 92% (an annualized 39% and 32%—hugely above-average for bull market returns).

Some market observers claim we’re in a depression. Though, they also acknowledge they cannot define “depression.” Which isn’t surprising—there is no technical definition. However, past periods categorized as depressions all included recessions. We aren’t in a recession now and haven’t been in one in over 11 quarters.

Unemployment is still above average. However, as I’ve written before, this is normally what happens after a recession (see this infographic from Fisher Investments). Unemployment often peaks after a recession ends and stays high for some time, falling gradually throughout the expansion. Folks who bemoan the economy can’t grow on high unemployment have this backward. Low unemployment doesn’t prevent economic weakness. In fact, new recessions historically started when the official unemployment rate was at or near cyclical lows. Economic growth leads to hiring, at a lag. Economic recession leads to layoffs, also at a bit of a lag. What’s more, private employment, after bottoming in early 2010, has been growing steadily.

So, sure, the private economy is doing fine.

Now, fine is not gangbusters. Could unemployment be lower and growth faster had Obama and Congress done something different? Sure! It seems clear economies grow best when they’re hamstrung less by barriers to entrepreneurship. Lower taxes, non-befuddlingregulation, less uncertainty about future taxes and regulation—these are all things that create a friendlier environment to start and grow a business. Could the economy be worse had they done some other set of something differents? Sure! But this is all conjecture—we can woulda coulda shoulda forever.

And however you feel about major legislation passed in recent years, these are US-centric issues. The US hasn’t been pacing above-average growth, but it’s been one of the faster growing developed countries. Then, too, US policy and regulation—whether smart or stupid—impacts the US economy mostly, the global economy less. The US is now less than 25% of global GDP. Even if US politicians behave very stupidly (give them enough time . . . they will) the 75% of global GDP that isn’t the US has a big impact on the 25% that is.

But what’s amazing is folk’s perception of the economy seems closely aligned with ideology. Say the economy is fine, and someone may accuse you of being a shill for the Democrats—and the reverse. This ideological divide isn’t unique to now. This is SOP for politicians—they know it’s tough for folks to get an accurate feel how the broad economy is doing. For example, in 1992, George HW Bush was belittled for saying the economy was doing fine, while Bill Clinton ran on, “It’s the economy, stupid,” and won. Yet, Bush was right—the recession ended in March 1991. Full year 1992 GDP was 3.4%—a bit above average.

Ideology is fine. However, if you view the economy and capital markets through an ideological prism, you’re starting off biased. And bias can be deadly in investing. It prevents you from seeing clearly, and isn’t investing hard enough without skewed vision? For example, if you believe your favored guy is the bee’s knees, and if the other fellow wins, we’re assured a visit from the Four Horsemen, you’d miss the fact that 2012 is likely a sweet-spot scenario for stocks. Years we re-elect a Democrat, US stocks average 14.5% historically, and years we newly elect a Republican, they average 18.8%—and the only negative was when we re-elected FDR—for the second time. You can consider that an outlier.

All returns from Thomson Reuters, S&P 500 total return, MSCI World Index with net dividends, as of 06/19/2012.

This constitutes the views, opinions and commentary of the author as of May 2012 and should not be regarded as personal investment advice. No assurances are made the author will continue to hold these views, which may change at any time without notice. No assurances are made regarding the accuracy of any forecast made. Past performance is no guarantee of future results. Investing in stock markets involves the risk of loss.

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